Case studies

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R v Iannelli (2003) (NSW Court of
Criminal Appeal)

Company director failed to pay employees' income tax

The defendant was the director of two companies.

The Court was satisfied that at all material times the returns lodged by the
defendant's companies were true and correct. There was no evidence of any false or
misleading statements or evidence of their failure to pay being concealed.

The defendant's companies, in the usual fashion, deducted amounts from their
employees' income for the purpose of satisfying income tax obligations. It appears,
however, that due to severe cash flow issues, these amounts were never paid to the
Commissioner.

The defendant was indicted on two charges of "Defrauding the Commonwealth" through
not remitting in full the amounts owed to the Commissioner. In other words, the
Commonwealth alleges that they were defrauded by the debtor's failure to pay their
debt.

The debtor was sentenced to six months' periodic detention for the offences at first
instance.

On appeal, the Court held that simply not paying a debt was not fraud in the absence
of evidence that the defendant had somehow concealed either information or the
non-payment of the debts. The Court said "in the present case... there was no evidence
companies made any false or misleading statements to the Commissioner or concealed
their failures to pay or that the Commissioner was deceived...". Thus the company's
returns contained no fraudulent misrepresentations or non-disclosure, and in any event
the Crown did not establish that they deprived the Commonwealth of the group tax or put
that tax at risk.

On this basis the Court held that there was no defrauding of the Commonwealth and
allowed the appeal, dismissing all the charges.

R v Pearce

Accountants conspire with their clients to defraud
Commonwealth

Three accountants were sued for Conspiracy to Defraud the Commonwealth in relation
to tax advice and tax lodgements made on behalf of and with their clients. The
accountants were each sentenced to terms of imprisonment for five years each.

The advice given was in relation to a scheme to set up an internet service provider.
It appeared that the scheme was essentially a scheme of round robin transactions,
whereby the only purpose was, so the Crown alleged, to obtain deductions for their
clients that would, in the end, have a positive cash flow result.

Essentially, the Court of Criminal Appeal held that the dishonesty and fraudulent
conduct arose from the facade created around the transactions which did not accurately
reflect the true facts.

The defendants were sentenced to jail for five years with a minimum of 18 months.
Two other accountants who plead guilty were sentenced to 4 years each with the same
minimum terms.

It is important to distinguish this kind of criminal prosecution from any action
under part 4A of the Taxation Assessment Act. Any action taken by the Tax
Office to retrieve amounts or re-assess parties has little to do with whether any
action against the promoters of the scheme will be successful. The allegation would be
that the actions of the marketers in creating, and then the actions in marketing the
scheme were fraudulent in their nature and acted to deceive other people, and it was
upon this basis that the defendants were pursued.

It should also be noted that the fraud alleged was a fraud against the Commonwealth,
not against the individual persons. Whilst it is perfectly possible that the actions of
a marketer may in some way act to defraud a person, for example by making false
promises or by making claims that can not be defended, it was the case in this matter
that the defendants were pursued for defrauding the Commonwealth. The basis upon which
this would be alleged would be that the defendants created a "scheme" wherein they
would assist and facilitate persons who wished to defraud the Commonwealth.

There does not appear to be any particular reason why a dual charge of defrauding
taxpayers and defrauding the Commonwealth could not be filed under particular
circumstances.

where to next?

If you suspect that you may be under investigation, or if you have been charged with an offence, it is vital to get competent legal advice as early as possible. Our lawyers are highly specialised in corporate crime and will be able to guide you through the process while dealing with the various authorities related to your matter.